Decades ago, when discussing the complexity of U.S. tax code, an ag lobbyist friend noted that all he wanted in any tax reform “was to pay the same taxes the generals paid: General Mills, General Motors, General Dynamics …”
He still would take that deal. In 2018, General Dynamics had an effective tax rate of 17.8 percent, more than 3 percentage points below the federal corporate tax rate of 21 percent. General Mills did even better; its effective federal tax rate was a gluten-free 2.7 percent.
General Motors, however, was the Cadillac of the 2018 federal tax game. Despite a net income of $4.3 billion, GM not only paid no federal taxes, it received a $104 million rebate to give it an effective federal tax rate of negative 2 percent.
Big Aggies benefited, too. The green giant, Deere & Co., netted $2.2 billion in 2018 profit yet harvested a $260 million federal tax rebate to drop its effective federal tax rate to an astonishing negative 12 percent.
Talk about green paint envy.
Given those numbers, you might feel like a tax-paying chump. Rest easy, because you can’t hold a candle to the 2018 tax-chump champ, me: I paid more for my Amazon Prime membership last year, $119, than Amazon paid in federal income taxes.
That’s right, folks, Amazon got a prime deal from Uncle Sam; no taxes despite $11 billion net profit on $232 billion in sales.
And then, no kidding, it must have had a special promo code at checkout because Amazon also received a $129 million federal tax rebate.
So goes the great federal tax reform of 2017 where corporate federal tax rates fell from 35 percent to 21 percent and, correspondingly, corporate tax collections fell from $297 billion to $205 billion. That decline, according to the U.S. Treasury, contributed the biggest share (82 percent) of the $113 billion increase in 2018’s federal deficit over 2017.
Are you, like me, surprised that U.S. corporate income taxes totaled just $205 billion — or a meager 6.5 percent — of the more than $3.2 trillion in federal income taxes collected in 2018?
We should all be, because that relatively small amount runs counter to the central argument behind the $1.5 trillion, 2017 tax cut: that our sky-high, corporate taxes were killing U.S. business around the world.
The truth — now as it was then — is that U.S. corporate tax collections, according to the U.S. Treasury (as reported by the conservative corporate diarist, Forbes.com) have fallen from FY 2014, when they totaled $321 billion, to FY 2017, when they hit $297 billion.
Despite that steady slide, Congress and White House, deaf to warnings that tax cuts would bloat the federal deficit, slashed the corporate tax rate 40 percent — from 35 percent to 21 percent — in late 2017 and, as predicted, the federal deficit ballooned in 2018.
And the balloon will only get bigger.
“One item to note,” explains Chuck Jones, a senior contributor to Forbes.com wrote last October, “is that the lower tax rates were not implemented until January of (2018). This means that the full impact of the lower tax receipts won’t show up until fiscal 2019, and it could take another year or two after that …”
In other words, explained the Congressional Budget Office (CBO) in its January 2019 report, “The Budget and Economic Outlook: 2019 to 2029,” “In CBO projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning 2022.”
And that’s only if the economy continues to grow at rate of 2.3 percent or better for the next decade (fat chance) while federal spending doesn’t grow faster (an even fatter chance).
So, sure, my taxes and yours — income taxes, fuel taxes, local and state sales taxes, property taxes, pick your tax — are going up because the 2017 federal tax cuts, like $7 beans and $3 corn, are unsustainable.
Unless, of course, we become generals.